Razr Ringing Up Profits For Motorola

When Motorola announces first quarter earnings later today, analysts expect the Schaumburg electronics company to once again report strong handset sales, which account for nearly 60% of total revenues, even though the first quarter is typically sluggish for the wireless industry.

Demand for the slim Razr, currently the world's most popular cellular phone, continues to outstrip supply worldwide, analysts say. And the Slvr, its successor, is selling better than the Razr did in the months following its product launch, Motorola says.

Analysts expect Motorola to earn 29 cents a share in the first quarter, according to IBES, compared with 22 cents a year ago.

While smaller mobile phone manufacturers continue to struggle, Nokia Corp. and Motorola, the sector's #1 and #2 players, appear to be pulling away. They're gaining market share globally by dominating sales of pricey phones, like the Razr and Nokia's 6100 series, while gaining momentum in rapidly growing markets like India.

Korea's Samsung Electronics Co., the industry's #3 player, reported last week that the average price of its exported handsets fell 7%, quarter over quarter - a closely watched indicator since falling prices signal that profits will be squeezed.

However, Nokia announced last week that its average sales price rose 4% to Euros 103, or about $126, and analysts expect Moto to report a similar increase.

Motorola doesn't appear to have been hurt by a glitch that caused two major U.S. carriers to briefly pull the Razr from their shelves last month, or the delayed launch of the Q, a Blackberry-like device with the Razr's slimness, says T. Michael Walkley, senior research analyst with Piper Jaffray, a Minneapolis-based investment bank.

The Razr and the Slvr, a candybar-shaped handset using similar styling, were big sellers in North America, Europe and Asia, analysts say. Mark Sue, analyst with RBC Capital Markets, estimates that Motorola shipped about 44 million phones, in total, including more than 15 million Razrs and more than 5 million Slvrs during the quarter.

Verizon Wireless is expected to launch the Q later this month, although Motorola hasn't announced which carrier will first carry the high-end phone, aimed at corporate customers.

"Not shipping in March vs. shipping in April doesn't have a big financial impact," says Mr. Walkley of Piper Jaffray. "You'd rather have the product work well and ship a month late, than have problems."

However, the Pebl, another phone touted for its groundbreaking design, hasn't taken off with North American consumers - one potential setback for Motorola.

Mr. Walkley blames the continued popularity of the Razr and the phone's initial $300 price tag for the lackluster results. Sales have picked up since T-Mobile began offering the Pebl for as little as $99, says Mr. Walkley, whose research team monitors sales results at hundreds of mobile-phone stores.

Motorola's likely to see modest sales growth for the second quarter, about 7%, predicts analyst Albert Lin of American Technology Research, a Bay Area market research firm.

He sees limited upside to the company's stock over the near term, given that it has appreciated 20% over the past six months. Motorola shares, which closed Monday at $23.58, will stay in the $25 range.